US Insights

CVS sees growth spurred across all segments

Ben Antenore

Analyst

Retail 08.20.2019 / 09:00

cvs-pharmacy-mother-and-child-shopping

CVS Health posted healthy second-quarter results, driven by growth across the enterprise.

CVS Health posted healthy second-quarter results, driven by growth across the enterprise, with the Retail/Long-Term Care and Pharmacy Services segments performing particularly well. Within the Retail/LTC segment, CVS’s front-store continued its positive trend, with comparable sales growing 2.9% as pharmacy same-store sales increased 3.8%, benefiting from robust script growth.

With its business humming along and the retailer at work integrating Aetna, CVS Health’s senior leadership team kept the earnings call short. Here are a few key takeaways:

The front store keeps growing

CVS’s front store remains a safe harbor in the tempestuous sea of the drug channel front store. With comparable sales growing 2.9%, CVS’s front store benefited from a later shift in Easter seasonal sales and the continued strength of health and beauty categories. Executive Vice President Kevin Hourican was particularly proud of investments in health and beauty, which have enabled CVS to “take share from the market and grow share of wallet” with existing shoppers.

Beyond its investment in assortment, CVS is also pleased with the performance of its remodeled stores. These stores, so far, have posted higher comps than older-generation locations. Hourican did not specify which remodels he was referring to, since the HealthHub, BeautyIRL, and Take High Higher formats are all still in the mix and part of CVS’s future store strategy.

ExtraCare moves into the future

In his section of the call, CEO Larry Merlo gave special attention to ExtraCare, CVS’s long-standing and relatively unchanged loyalty program. The retailer has invested in ExtraCare’s system infrastructure, introducing machine learning tools that will improve customer engagement. Considering the retailer’s future ambition to build out unique profiles of every patient/shopper, ExtraCare will need to grow and evolve as a program, and these digital upgrades will help it become a more capable personalization tool.

Beyond these infrastructure improvements, CVS is also expanding CarePass, its Amazon Prime-lite program, nationwide. Early shopper response has been positive — with traffic increases both in store and online — but CVS will need to be careful and strategic with the program rollout, considering the crowded field of digital-centric subscription services. 

Store openings slow

In the Q&A segment of the call, Hourican revealed a remarkable shift in the retailer’s store strategy: CVS plans to open only 100 new stores in 2019 and just 50 in 2020. Considering that the retailer was planning to open 300 stores a year only a few years ago, this is a remarkable decision. Hourican also said that future openings will occur primarily in the under-stored Pacific Northwest and in high-growth areas like New York City and Texas.

Mirroring Walgreens and many other retail players, CVS is focusing on its existing stores. Earlier in the year, Hourican had mentioned that CVS would look to close or remodel over 500 underperforming locations. Depending on how many stores the retailer decides to close versus remodel, CVS’s store growth will likely be negative, despite that trickle of new stores in growing markets. CVS plans to remodel its stores along two paths — transitioning stores to either the Take High Higher health format (first introduced several years ago) or the next-generation HealthHub. The retailer will also gradually expand its BeautyIRL specialty format to more than 50 locations in the next few years.

CVS seems to have settled into a groove, boosting its guidance for the rest of the year as it rides a positive wave from its Aetna acquisition. The drug channel is ripe for disruption, and CVS will need to remain alert and agile if it wants to take these positive trends into the future.

Source: Kantar

Editor's Notes

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